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RMI points to US for future of new car retailing in the UK

The hottest topic among dealers at the moment is the changes that are likely to come out of the Block Exemption review. Is there anything dealers can be doing to prepare?
The whole industry is gripped by uncertainty and it's not possible to point to a single direction to take. The uncertainty stems from knowing that every seven to 10 years the legislation will be reviewed – and we must not fall prey to knee-jerk reactions.
Ford's commitment to the Polar Motor Group and Pendragon and investment in Kwik-Fit is an insurance against what might happen.

What changes have the RMI been advocating?
The most important result to come out of the review for dealers would be an end to two year franchise contracts. There should be an industry-wide lengthening of the contracts to, say, five years. It's widely accepted that it's impossible to plan and invest on a contract of two years. The kind of commitment expected from manufacturers and importers means that longer contracts make more sense for the dealer. Dealers should also have greater rights of self-determination, allowing them, for example, to decide who to sell their business to, without which it's impossible to value your business. I'm aware of cases where a manufacturer has insisted a business is sold to a certain party even though its offer price wasn't the highest.
We want something resembling the US market. In the US a dealer can only lose a franchise if they are guilty of dishonesty or financial malpractice, or other significant failure, such as not selling cars. In such circumstances a dealer would then be put on a two-year termination notice.

What is the prime benefit of longer contracts?
A whole new relationship would develop between manufacturer and dealer. Today, switched-on car retailers build themselves smart sheds to display the cars, in case the business fails for whatever reason and their 'showroom' has to become a carpet warehouse. Longer contracts means the confidence to be radical in business and in building outlets. Radical thought is bounded only by people's imaginations, but an example is Saab's displays at airports.

What has the RMI been doing to push the US-model?
It was part of our evidence to the Competition Commission and its inquiry into new car prices and the Department of Trade and Industry recognises its value. The Government will wait to see what the EC comes up with before moving on this.

Does the EC do enough to stop abuses of manufacturer power?
It's done some service in highlighting the abuses of some of the larger companies. But you could ask, has Mario Monti (the competition commissioner) done enough to monitor the regulation in the intervening years since the last Block Exemption review. I say he hasn't. For the last few years new car retailing has become a game of football without a ref. There's always the expressions of shock and horror on the pricing issue and a small number of significant fines against a couple of carmakers, but the EC never looks below the surface.
It won't either. In time the EC will find some way to divest itself of the responsbility to member states. Stephen Byers' new cars order last year was an attempt to influence market place over and above Block Exemption.

Have you been communicating throughout the Block Exemption debate to dealers on what you believe will happen?
We've been advising them that things won't change radically. The issue has been distorted in this country by the media with stories about Block Exemption's imminent demise and the imminent appearance of new cars in supermarkets. This doesn't happen in Europe where there is a strong lobby for its retention. This has to do with the laws protecting smaller businesses which means they have stronger lobbying power. Countries like Germany and France also have a much stronger manufacturing base than the UK. Unions in these countries are supporting the retention of Block Exemption because they believe it protects the manufacturing base. And Germany and France don't have organisations like the Consumers' Association which grandstand the issue.

Greater freedom to run multi-manufacturer sites has been one of the suggested outcomes of the Block Exemption review. Is this a real possibility?
It's never as easy as the theoreticians say. In 1995 before the current Block Exemption came in – which in theory made it easier to establish them – there's been a 30% drop in multi-franchise sites. It's down to manufacturer pressure. After each Block Exemption review new dealer agreements are issued and, without getting heavy handed, the manufacturers tell the dealers, 'we would really like you to have solus premises'.

You've already criticised the media for pushing the notion of supermarkets selling new cars. It won't happen then?
In the mid-80s Asda effectively became a franchised dealer at 10 of its stores. It offered everything, except trade-ins and after about two years pulled the plug, despite it proving a success, because the returns still didn't justify the space taken up. Asda probably got a 3% return which is better than a new car dealer now. But supermarkets want 8% and I can't believe they will try and get back into it.

Not even in a joint venture with a dealer who manages the showroom space?
Space would still be at a premium. The space just one car takes up can be stuffed full of tinned food and make a greater profit. A supermarket does not want to invest in people, they just want the positive sell.

There have been warnings that the End of Life Vehicles Directive, which makes manufacturers responsible for the recycling of their cars, could bankrupt MG Rover and push up new car prices. What are your views on the Government proposal to introduce this European legislation in 2002, compared with the deadline of 2007 laid down by the European Commission?
The Government tends to take European legislation and overdo it and this is a classic example. I agree in principle to the proposed legislation, but not in the way our government is pushing it. I don't know if we will be successful in convincing the Government not to introduce it early.
I can't comment on the impact on MG Rover, but I do foresee manufacturers passing the cost of the recycling onto the consumer.
The RMI has been invited to give evidence along with the SMMT, Consumers' Association and salvage organisations to a trade and industry select committee on October 23.

Do you think the cancellation of the London motor show is a temporary blip in its future or a symbol of a deeper malaise in that style of event?
Not so long ago dealerships were like churches – cold and dank and you only visited one if you had to. As a result motor shows flourished. But now dealers are building the showrooms that can recreate the motor show experience, but without the crowds.
The internet has also played its part. People can now find out about cars the moment they're launched. There are also so many shows across Europe that with air travel available so cheaply, a flight to Geneva for the day could cost less than a train ticket for some people to the Birmingham or London. Cheap travel combined with manufacturers' ability to bring out new models in the UK when they want to rather than focussing on an October plate change also contributed to the demise of the UK motor show.
The Scottish motor show has a limited life and I would suggest London and Birmingham also. Many in the industry see the prime European event as the Geneva show and possibly Detroit as the 'world show'.

How do you view Clarion Events' attempt to revitalise the Earls Court event by grouping cars by sector, such as 4x4 and MPV, rather than by manufacturer?
It was an act of desperation. Manufacturers fight too fiercely to establish their own territories to expect them accept such a scheme. There's speculation that the 2002 Birmingham show will adopt this idea.
For Birmingham to survive the SMMT will have to do something dramatic, but I don't know what that will be.

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